Brokerage firm notified in writing on 12/23/2003 to transfer IRA account to a new ROTH rollover account. However actual rollover conversion transfer did not actually happen until 1/4/2004 due to fault of brokerage firm which they have admitted. In which year should the rollover conversion be reported??

Date transaction occurred is the key date. All components of the portfolio will be valued as of Jan 4 and you will have a 2004 tax event. I hope you qualify for the conversion in this year!

Note to all readers: Custodians are very busy at the end of the year and in March/April (tax season). Do not wait to the last moment to try to get something done. Also, follow-up and make sure your instructions have been carried out. We get a few posts each year where the taxpayer did not look at subsequent monthly statements and did not catch errors.

Brokerage firm (Merrill Lynch) has said that transaction could be reported in 2003!! However, I do not know what they are relying on to support their conclusion.

I couldn't find the cite but I remember that the IRS said that a Roth conversion is taxable in the year it begins if that year is earlier than the time the conversion is complete.

In this situation I don't know what would constitute the beginning. If the owner made a request in 2003 that was not acted upon until 2004, it could be that the proper year is 2004.

It appears that would be a firm (the financial institution’s) decision. Some custodians may be willing to complete transactions “as of “ a past date, if they are at fault for not processing the transaction by such past date. As far as guidance, that may be subjective. Some have pulled out the Woods Vs Commissioner as a basis for making the customer whole. IMHO, Woods Vs Commissioner merely extended the 60-day deadline for the customer to make a rollover contribution…the extension allowed because the financial institution failed to correctly execute the customer’s instructions, by depositing a check in a non-retirement account instead of an IRA.